It Pays To Lose A War

Geopolitics: Since Thursday the Israeli Air Force has attacked five different sites in the Gaza Strip, laying down heavy barrages of bombs and missiles. At the same time, Hamas is firing rockets into Israel; a mini-war is raging in this theater of the Long War. Who are the good guys? The answer: both sides will probably end up being good guys eventually. Here’s why…
On Friday word leaked out that President Obama has “unofficially” been sending retired American ambassadors to meet and negotiate with the leaders of Hamas over the past few months; America has never done this before. Along the same lines, a currently employed (but on vacation) US diplomat met with a Hamas leader in London for a debate sponsored by the Al Jazeera TV channel, a move bordering on diplomatic recognition. Obama is also sending Sen. John Kerry to negotiate with the president of Syria. The US is reaching out to its former Arab enemies in the Israeli/Arab dispute and turning them into friends. Israel, in turn, will become an American enemy unless it switches gears.
Israel might be grabbing the shifter despite its aggression in Gaza. On Friday and Saturday, violence flared in the West Bank as Israeli settlers began a series of demonstrations designed to trigger a violent reaction from the Palestinians and force the Israeli Army to shed Arab blood. The Israeli Army clashed with Palestinians, as we might expect, but it also clashed with the settlers, the undisputed bad guys in the whole mess.
The Israeli Army firing rubber bullets on West Bank settlers is bullish. If Israel is humiliated in its mini-war with Hamas as it was in its war against Hezbollah/Lebanon in 2006, then the Israeli stock market will rock upward. This leads us to a broader principle: any war that results in American interests prevailing is bullish for stocks and the opposite is also true.
If a country wins a war that America wants it to lose, then that country’s stock market will collapse. For instance, Russia won a war against Georgia and Russia’s stock market fell a staggering 75%. What if a country loses a war that America wants it to lose? Iran has in fact been losing its long running cold war against the West and its losses are getting worse. Recently, Russia is starting to lean against Iran. This means more sanctions. That should clobber Iran’s stock market. But Iranian stocks are soaring. It pays to lose a war against the US. Just ask Germany and Japan.